SEBI vide its circular no. CIR/MIRSD/5/2013 dated August 27, 2013 issued a General Guidelines for dealing with Conflicts of Interest of Intermediaries, Recognized Stock Exchanges, Recognized Clearing Corporations, Depositories and their Associated Persons in Securities Market. SEBI decided to put in place comprehensive guidelines to collectively cover such entities and their associated persons, for elimination / avoidance of their conflict of interest and educating the Associated Persons as defined in Securities and Exchange Board of India (Certification of Associated Persons in the Securities Markets) Regulations, 2007 for the compliance of the guidelines. SEBI advised to lay down, with active involvement of senior management, policies and internal procedures to identify and avoid or to deal or manage actual or potential conflict of interest, develop an internal code of conduct governing operations and formulate standards of appropriate conduct in the performance of their activities, and ensure to communicate such policies, procedures and code to all concerned.
SEBI guidelines intends Intermediaries and their Associated Persons to comply with the following :
a. High standards of integrity in the conduct of business;
b. Fair treatment of clients and no discrimination amongst them;
c. Avoidance of conflict of personal interest with the client and primacy of clients, interest;
d. Appropriate disclosure to the clients of possible source or potential areas of conflict of interest;
e. Reducing the opportunities for conflict through prescriptive measures;
f. Appropriate restrictions on transactions in securities while handling a mandate of issuer or client in respect of such security;
g. Not to deal in securities while in possession of material non published information;
h. Not to communicate the material non published information while dealing in securities on behalf of others
i. Not to manipulate the demand for or supply of or to influence prices of, securities.
j. Not to have an incentive structure that encourages sale of products not suiting the risk profile of the clients;
k. Not to share client information for the personal interest;
This document sets out the Policy on management of Conflict of Interest for Eastern Financiers Limited. (EFL), with intent to define a policy and procedure for dealing with Conflict of Interest and to effectively manage any conflicts of interest that may arise in carrying out its business. Senior Management is responsible for ensuring that the Company's systems, controls and procedures are adequate to identify and manage conflicts of interest.
2. Policies and Internal Procedures to Identify and avoid or to deal or manage actual or potential Conflict of Interest
In order to strive for achieving management of conflict of interests, EFL shall endeavor:
a. To promote high standards of integrity in the conduct of business Eastern Financiers Ltd.
b. To ensure fairness of dealing with clients
c. To guide for identification, elimination or management of conflict of interest situations
d. To provide a mechanism for review and assessment of the policy(ies) on conflict of interests
The conflict of interest policy aims to ensure that the Company's clients are treated fairly and at the highest level of integrity and that their interests are protected at all times. It also aims to identify conflicts of interest between:
a. The Company and a Client
b. Relevant Person and a Client
c. A Company of the Group and a Client
d. Two or more Clients of the Company in the course of providing services to these Clients
e. A Company service provider and a Client
In addition it aims to prevent conflicts of interest from adversely affecting the interest of its Client.
a. The Company will identify circumstances which may give rise to conflicts of interest entailing a material risk of damage to our Clients' interests;
b. The Company has established appropriate mechanisms and systems to manage those conflicts;
c. The Company maintains systems designed to prevent damage to our Clients' interests through identified conflicts.
"Intermediary" and "Associated Person"
Securities and Exchange Board of India (Certification of Associated Persons in the Securities Markets) Regulations, 2007 defines the term "intermediaries" and "associated persons". Accordingly, "intermediary" means an entity registered under SEBI Act and includes any person required to obtain any membership or approval from a stock exchange or a self-regulatory organization; and "associated person" means a principal or employee of an intermediary or an agent or distributor or other natural person engaged in the securities business and includes an employee of a foreign institutional investor or a foreign venture capital investor working in India;
"Conflict of Interest"
Conflicts of Interest can be defined in many ways, including any situation in which an individual or corporation (either private or governmental) is in a position to exploit a professional or official capacity in some way for their personal or corporate benefit. A conflict of interest is a manifestation of the moral hazard problem, particularly when a financial institution provides multiple services and the potentially competing interests of those services may lead to a concealment of information or dissemination of misleading information. A conflict of interest exists when a party to a transaction could potentially make gain from taking actions that are detrimental to the other party in the transaction.
Potential Conflict of Interest
In order to avoid, manage or deal with conflict of interest with the intermediary or the Associated Persons, it is important to identify the possible areas of conflict of interest. EFL lists out the following potential conflict of interest that may affect the company.
i. Directorships or other employment;
ii. Interests in business enterprises or professional practices;
iii. Share ownership;
iv. Beneficial interests in trusts;
v. Personal Account Trading;
vi. Professional associations or relationships with other organizations;
vii. Personal associations with other groups or organizations, or family relationships;
viii. Front running;
xii. Where the company carries on the same business as a client;
xiii. Where the company designs, markets or recommends a product or service without properly considering all our other products and services and the interest of all our clients;
xiv. Where the company has a financial or other incentive to favour the interest of another client or group of clients over the interests of a client;
xv. Where the company has an interest in the outcome of a service provided to, or of a transaction carried out on behalf of, a client which is distinct from that client's interest in that outcome;
xvi. Where the company is likely to make a financial gain or avoid a financial loss at the expense of a client; and
xvii. Where the company receives, or will receive, from the person other than a client an inducement in relation to the service provided to that client in the form of monies, goods or services, other than the standard commission or fee for that service;
Measures to avoid or to deal or manage actual or potential Conflict of Interests
Should a conflict of interest arise, it needs to be managed promptly and fairly. The Company puts in place following arrangements to ensure that:
i. There is a clear distinction between the different departments' operations;
ii. No single person will gather conflicting information, thus counterfeiting or hiding information from investors is minimized;
iii. The Company's employees are prohibited from investing in a financial instrument for which they have access to non-public or confidential information;
iv. Transactions by the Company's employees are neither performed nor executed by themselves.
v. Employees sign a contract of employment including confidentiality clauses. No associated person may disclose inside information to others, except disclosures made in accordance with the Company's policies and procedures, to other Company personnel or persons outside the Company who have a valid business reason for receiving such information;
vi. Each department will control the flow of information where, otherwise, the risk of conflict of interest may harm the interest of a Client;
vii. Relevant information is recorded promptly in a secure environment to enable identification and management of conflicts of interests;
viii. Adequate records are maintained of the services and activities of the Company where a conflict of interest has been identified;
ix. In certain jurisdictions appropriate disclosure may be made to the Client in a clear, fair and not misleading manner to enable the Client to make an informed decision;
x. There is a periodic review of the adequacy of the Company's systems and controls.
xi. Employees are required to avoid conflicts of interest with activities they undertake outside EFL.
Disclosure to clients of possible source or potential areas of conflict of interest (COI):
i. EFL or its associated persons should, in writing, disclose to a client any COI in respect of that client including:
a. Measures taken to avoid or mitigate the conflict;
b. Any ownership interest or financial interest that the provider or representative may be or become eligible for;
c. The nature of the relationship or arrangements with a third party that gives rise to a COI in sufficient detail to enable the client to understand the exact nature of the COI.
ii. EFL will inform clients of the policy on Management of Conflict of Interest and how it may be accessed.
iii. Intimation of an actual or potential COI should be made to a person with responsibility for the issue or area, such as the relevant management team, head of the department or key individual.
iv. In accordance with an employee's obligation to act in the best interest of EFL, it is not permissible for employees to engage in conduct that would amount to a COI with EFL.
v. Staff that fail to disclose a potential or actual COI in accordance with this policy may be liable to disciplinary procedures.
vi. Where a conflict arises EFL or its Associated Persons will, if it is aware of it, disclose it to a client prior to undertaking trading activity for that client or, if the company does not believe that disclosure is appropriate, to manage the conflict, the company may opt not to proceed with the transaction or matter giving rise to the conflict.
vii. Where there is no other way of managing a conflict, or where the measures in place do not sufficiently protect Clients' interests, the conflict will be disclosed to allow the Client to make an informed decision on whether to continue using our service in the situation concerned.
viii. EFL may decline to act for a Client in cases where we believe a conflict of interest cannot be managed in any other way.
Policies and procedures
The Company has developed and implemented policies and procedures throughout its business to prevent or manage potential conflicts of interest. Our employees receive guidance and training in these policies and procedures, and they are subject to monitoring and review processes.
Procedure to comply with the policy
i. Every staff member must have a copy of the Policy on management of Conflicts of Interest.
ii. If a potential COI arises, the transaction must first be discussed with management before entering into the transaction.
iii. All new employees shall be required to declare their outside interests when they join the firm.
iv. All staff maintaining personal trading accounts outside of the company are required to instruct their broker to send copy contract notes and periodic statements to the company for reconciliation purposes.
v. The company Conflict of Interest Policy is located on the website www.easternfinanciers.com and is subject to annual review.
Consequences of non-compliance with the policy
Non-compliance with this policy and the procedures described in it may be considered to be misconduct and may be subject to disciplinary action
3. Internal code of conduct governing operations
EFL and Associated Persons shall abide by the Code of Conduct contained in the Schedule II of the Securities and Exchange Board of India (Stock-Brokers and Sub-Brokers) Regulations, 1992, as amended, for accomplishment of the objectives of the SEBI Code.
4. Communication of policies, procedures and code to all concerned
This Policy on management of Conflict of Interest offers general guidance in addition to EFL policies and procedures and is not meant to replace any of those policies or procedures and shall be made available through EFL website www.easternfinanciers.com or by sending a request in writing. EFL expects all its Associated persons, employees, to adhere to this policy. The Board of Directors of Eastern Financiers Ltd. reserves the right to amend, supplement or discontinue this policy and the matters addressed herein, without prior notice, at any time.
5. Implementation and Review of policy of management on Conflict of Interest
This policy shall come into effect from the date of approval of the Board of Directors of the company for its implementation so as to provide necessary guidance enabling identification, elimination or management of conflict of interest situations and that the same shall be reviewed and assessed annually by the company management
Policy passed by the Board of Directors at their meeting held on 11.09.2013.
1. The Beneficial Owner and the Depository participant (DP) shall be bound by the provisions of the Depositories Act, 1996, SEBI (Depositories and Participants) Regulations, 1996, Rules and Regulations of Securities and Exchange Board of India (SEBI), Circulars/Notifications/Guidelines issued there under, Bye Laws and Business Rules/Operating Instructions issued by the Depositories and relevant notifications of Government Authorities as may be in force from time to time.
2. The DP shall open/activate demat account of a beneficial owner in the depository system only after receipt of complete Account opening form, KYC and supporting documents as specified by SEBI from time to time.
Beneficial Owner information
3. The DP shall maintain all the details of the beneficial owner(s) as mentioned in the account opening form, supporting documents submitted by them and/or any other information pertaining to the beneficial owner confidentially and shall not disclose the same to any person except as required by any statutory, legal or regulatory authority in this regard.
4. The Beneficial Owner shall immediately notify the DP in writing, if there is any change in details provided in the account opening form as submitted to the DP at the time of opening the demat account or furnished to the DP from time to time.
5. The Beneficial Owner shall pay such charges to the DP for the purpose of holding and transfer of securities in dematerialized form and for availing depository services as may be agreed to from time to time between the DP and the Beneficial Owner as set out in the Tariff Sheet provided by the DP. It may be informed to the Beneficial Owner that "no charges are payable for opening of demat accounts"
6. In case of Basic Services Demat Accounts, the DP shall adhere to the charge structure as laid down under the relevant SEBI and/or Depository circulars/directions/notifications issued from time to time.
7. The DP shall not increase any charges/tariff agreed upon unless it has given a notice in writing of not less than thirty days to the Beneficial Owner regarding the same.
8. The Beneficial Owner shall have the right to get the securities, which have been admitted on the Depositories, dematerialized in the form and manner laid down under the Bye Laws, Business Rules and Operating Instructions of the depositories.
9. The DP shall open separate accounts in the name of each of the beneficial owners and securities of each beneficial owner shall be segregated and shall not be mixed up with the securities of other beneficial owners and/or DP's own securities held in dematerialized form.
10. The DP shall not facilitate the Beneficial Owner to create or permit any pledge and /or hypothecation or any other interest or encumbrance over all or any of such securities submitted for dematerialization and/or held in demat account except in the form and manner prescribed in the Depositories Act, 1996, SEBI (Depositories and Participants) Regulations, 1996 and Bye-Laws/Operating Instructions/Business Rules of the Depositories.
Transfer of Securities
11. The DP shall effect transfer to and from the demat accounts of the Beneficial Owner only on the basis of an order, instruction, direction or mandate duly authorized by the Beneficial Owner and the DP shall maintain the original documents and the audit trail of such authorizations.
12. The Beneficial Owner reserves the right to give standing instructions with regard to the crediting of securities in his demat account and the DP shall act according to such instructions.
Statement of account
13. The DP shall provide statements of accounts to the beneficial owner in such form and manner and at such time as agreed with the Beneficial Owner and as specified by SEBI/depository in this regard.
14. However, if there is no transaction in the demat account, or if the balance has become Nil during the year, the DP shall send one physical statement of holding annually to such BOs and shall resume sending the transaction statement as and when there is a transaction in the account.
15. The DP may provide the services of issuing the statement of demat accounts in an electronic mode if the Beneficial Owner so desires. The DP will furnish to the Beneficial Owner the statement of demat accounts under its digital signature, as governed under the Information Technology Act, 2000. However if the DP does not have the facility of providing the statement of demat account in the electronic mode, then the Participant shall be obliged to forward the statement of demat accounts in physical form.
16. In case of Basic Services Demat Accounts, the DP shall send the transaction statements as mandated by SEBI and/or Depository from time to time.
Manner of Closure of Demat account
17. The DP shall have the right to close the demat account of the Beneficial Owner, for any reasons whatsoever, provided the DP has given a notice in writing of not less than thirty days to the Beneficial Owner as well as to the Depository. Similarly, the Beneficial Owner shall have the right to close his/her demat account held with the DP provided no charges are payable by him/her to the DP. In such an event, the Beneficial Owner shall specify whether the balances in their demat account should be transferred to another demat account of the Beneficial Owner held with another DP or to rematerialize the security balances held.
18. Based on the instructions of the Beneficial Owner, the DP shall initiate the procedure for transferring such security balances or rematerialize such security balances within a period of thirty days as per procedure specified from time to time by the depository. Provided further, closure of demat account shall not affect the rights, liabilities and obligations of either the Beneficial Owner or the DP and shall continue to bind the parties to their satisfactory completion.
Default in payment of charges
19. In event of Beneficial Owner committing a default in the payment of any amount provided in Clause 5 & 6 within a period of thirty days from the date of demand, without prejudice to the right of the DP to close the demat account of the Beneficial Owner, the DP may charge interest at a rate as specified by the Depository from time to time for the period of such default.
20. In case the Beneficial Owner has failed to make the payment of any of the amounts as provided in Clause 5&6 specified above, the DP after giving two days notice to the Beneficial Owner shall have the right to stop processing of instructions of the Beneficial Owner till such time he makes the payment along with interest, if any.
Liability of the Depository
21. As per Section 16 of Depositories Act, 1996,
1. Without prejudice to the provisions of any other law for the time being in force, any loss caused to the beneficial owner due to the negligence of the depository or the participant, the depository shall indemnify such beneficial owner.
2. Where the loss due to the negligence of the participant under Clause (1) above, is indemnified by the depository, the depository shall have the right to recover the same from such participant.
Freezing/ Defreezing of accounts
22. The Beneficial Owner may exercise the right to freeze/defreeze his/her demat account maintained with the DP in accordance with the procedure and subject to the restrictions laid down under the Bye Laws and Business Rules/Operating Instructions.
23. The DP or the Depository shall have the right to freeze/defreeze the accounts of the Beneficial Owners on receipt of instructions received from any regulator or court or any statutory authority.
Redressal of Investor grievance
24. The DP shall redress all grievances of the Beneficial Owner against the DP within a period of thirty days from the date of receipt of the complaint.
25. If the Beneficial Owner is a body corporate or a legal entity, it shall, along with the account opening form, furnish to the DP, a list of officials authorized by it, who shall represent and interact on its behalf with the Participant. Any change in such list including additions, deletions or alterations thereto shall be forthwith communicated to the Participant.
Law and Jurisdiction
26. In addition to the specific rights set out in this document, the DP and the Beneficial owner shall be entitled to exercise any other rights which the DP or the Beneficial Owner may have under the Rules, Bye Laws and Regulations of the respective Depository in which the demat account is opened and circulars/notices issued there under or Rules and Regulations of SEBI.
27. The provisions of this document shall always be subject to Government notification, any rules, regulations, guidelines and circulars/ notices issued by SEBI and Rules, Regulations and Bye-laws of the relevant Depository, where the Beneficial Owner maintains his/ her account, that may be in force from time to time.
28. The Beneficial Owner and the DP shall abide by the arbitration and conciliation procedure prescribed under the Bye-laws of the depository and that such procedure shall be applicable to any disputes between the DP and the Beneficial Owner.
29. Words and expressions which are used in this document but which are not defined herein shall unless the context otherwise requires, have the same meanings as assigned thereto in the Rules, Bye-laws and Regulations and circulars/notices issued there under by the depository and /or SEBI
30. Any changes in the rights and obligations which are specified by SEBI/Depositories shall also be brought to the notice of the clients at once.
31. If the rights and obligations of the parties hereto are altered by virtue of change in Rules and regulations of SEBI or Bye-laws, Rules and Regulations of the relevant Depository, where the Beneficial Owner maintains his/her account, such changes shall be deemed to have been incorporated herein in modification of the rights and obligations of the parties mentioned in this document.
Written procedures to implement the anti-money laundering provisions as envisaged under the Anti Money Laundering Act, 2002.
The Prevention of Money Laundering Act, 2002(PMLA) has been brought into force with effect from 1st July, 2005. As per the provisions of the Act and the SEBI Master Circular No. CIR/ISD/AML/3/2010 dated 31.12.2010, every stock-broker, sub-broker registered under section 12 of the Securities and Exchange Board of India Act, 1992 (SEBI Act, 1992) shall have to maintain a record of all the transactions; the nature and value of which has been prescribed in the Rules notified under the PMLA.
The procedures shall include inter alia, the following three specific parameters which are related to the overall 'Client Due Diligence Process':
(a) Policy for acceptance of clients
(b) Procedure for identifying the clients
(c) Transaction monitoring and reporting especially Suspicious Transactions Reporting (STR).
Eastern Financiers Limited is fully committed to combat any effort of laundering money earned through drug trafficking, terrorism and any other means of organized and serious crimes by any individual or entity. The policies and procedures to combat Money Laundering cover:
a) Communication of policies relating to prevention of Money Laundering and Terrorist Financing to all the management and relevant staff among all the branches, departments or subsidiaries. We ensure that the contents of these Directives are understood by all staff members;
b) Regularly reviewing the policies and procedures on the prevention of Money Laundering and Terrorist Financing to ensure their effectiveness. Further, in order to ensure the effectiveness of policies and procedures Policies framing and regulating are done by the different senior management person as per the latest circular/notifications/guidelines issued by the regulatory authority from time to time.
c) Adopting client acceptance policies and procedures which are sensitive to risk of Money Laundering and Terrorist Financing;
d) Undertaking client due diligence ("CDD") measures to an extent that is sensitive to the risk of Money Laundering (ML) and Terrorist Financing (TF) depending on the type of client, business relationship or transaction;
e) Undertaking to develop a system for identifying, monitoring and reporting suspected ML or TF transaction to the law enforcement authorities;
f) Developing staff member's awareness and vigilance to guard ML and TF.
g) Maintaining of record;
h) Compliance with relevant statutory and regulatory requirements;
i) Co-operating with the relevant law enforcement authorities, including the timely disclosure of information; and
f) Ensuring compliance with the policies, procedures, and controls relating to the prevention of Money Laundering and Terrorist Financing, including the testing of the system for detecting suspected money laundering transaction, evaluating and checking the adequacy of exception reports generated on large and/or irregular transactions, the quality of reporting of suspicious transaction and the level awareness of front line staff, of their responsibilities in this regard.
To ensure the compliance with the above procedure, a committee named KYC Committee shall be formed constituting senior officials of the Company including at least one designated director of the Company and the Principal Officer appointed under Anti Money Laundering Act, 2002.
The customer due diligence ("CDD) measures comprises the following:
(a) Obtaining sufficient information in order to identify persons who beneficially own or control securities account. Whenever it is apparent that the securities acquired or maintained through an account are beneficially owned by a party other than the client, that party should be identified using client identification and verification procedures.
(b) Verify the customer's identity using reliable, independent source documents, data or information;
(c) Identify beneficial ownership and control, i.e. determine which individual(s) ultimately own(s) or control(s) the customer and/or the person on whose behalf a transaction is being conducted;
(d) Verify the identity of the beneficial owner of the customer and/or the person on whose behalf a transaction is being conducted, corroborating the information provided in relation to (c); and
(e) Conduct ongoing due diligence and scrutiny, i.e. perform ongoing scrutiny of the transactions and account throughout the course of the business relationship to ensure that the transactions being conducted are consistent with the registered intermediary's knowledge of the customer, its business and risk profile, taking into account, where necessary, the customer's source of funds.
(f) Updatation of all documents, data or information of all clients and beneficial owners collected under the CDD process.
(g) The CDD process should necessarily be revisited when there are suspicions of money laundering or financing of terrorism (ML/FT).
(h) The Company may rely on a third party for the purpose of (a) identification and verification of the identity of a client and (b) determination of whether the client is acting on behalf of a beneficial owner, identification of the beneficial owner and verification of the identity of the beneficial owner. Such third party shall be regulated, supervised or monitored for, and have measures in place for compliance with CDD and record-keeping requirements in line with the obligations under the PML Act.
(i) Such reliance shall be subject to the conditions that are specified in Rule 9 (2) of the PML Rules and shall be in accordance with the regulations and circulars/ guidelines issued by SEBI from time to time. Further, it is clarified that the Company shall be ultimately responsible for CDD and undertaking enhanced due diligence measures, as applicable.
POLICY FOR ACCEPTANCE OF CLIENTS
This policy is being developed to identify the types of customers that are likely to pose a higher than the average risk of money laundering or terrorist financing.
The following safeguards shall be followed while accepting the clients:
a) No account shall be opened in a fictitious / benami name or on an anonymous basis.
b) Factors of risk perception shall be considered by verifying registered office address, correspondence addresses, nature of business activity, trading turnover etc and manner of making payment for transactions undertaken. The clients shall be classified into low, medium and high risk categories. Clients of special category as mentioned below shall be categorized in higher category requiring higher degree of due diligence and regular update of KYC profile. Further low risk provisions should not apply when there are suspicions of ML/FT or when other factors give rise to a belief that the customer does not in fact pose a low risk.
i. Non resident clients,
ii. High net-worth clients,
iii. Trust, Charities, NGOs and organizations receiving donations,
iv. Companies having close family shareholdings or beneficial ownership,
v. Politically exposed persons (PEP). Politically exposed persons are individuals who are or have been entrusted with prominent public functions in a foreign country, e.g., Heads of States or of Governments, senior politicians, senior government/judicial/military officers, senior executives of state-owned corporations, important political party officials their close family members or close relatives,
vi. Companies offering foreign exchange offerings,
vii. Clients in high risk countries where existence / effectiveness of money laundering controls is suspect or which do not or insufficiently apply FATF standards, where there is unusual banking secrecy, Countries active in narcotics production, Countries where corruption (as per Transparency International Corruption Perception Index) is highly prevalent, Countries against which government sanctions are applied, Countries reputed to be any of the following - Havens / sponsors of international terrorism, offshore financial centers, tax havens, countries where fraud is highly prevalent. While dealing with clients in high risk countries where existence/effectiveness of money laundering control is suspect, it is clarified that apart from being guided by the Financial Action Task Force (FATF) statements that identify countries that do not or insufficiently apply the FATF Recommendations, published by the FATF on its website (www.fatfgafi.org), company should independently access and consider other publicly available information.
viii. Non face to face clients,
ix. Clients with dubious reputation as per public information available etc.
c) It shall carry out risk assessment to identify, assess and take effective measures to mitigate its money laundering and terrorist financing risk with respect to its clients, countries or geographical areas, nature and volume of transactions, payment methods used by clients, etc. The risk assessment shall also take into account any country specific information that is circulated by the Government of India and SEBI from time to time, as well as, the updated list of individuals and entities who are subjected to sanction measures as required under the various United Nations' Security Council Resolutions.
d) The risk assessment carried out shall consider all the relevant risk factors before determining the level of overall risk and the appropriate level and type of mitigation to be applied. The assessment shall be documented, updated regularly and made available to competent authorities and self regulating bodies, as and when required.
e) Proper documentation and other information shall be collected in respect of different classes of clients depending on perceived risk and having regard to the requirement to the Prevention of Money Laundering Act 2002, guidelines issued by RBI and SEBI from time to time.
f) No account shall be opened where the Company is unable to apply appropriate clients due diligence measures / KYC policies. The Company shall not continue to do business with a person with suspicious activity.
g) The persons acting for/ on behalf of the clients shall have an authority / consent letter. Adequate verification of a person's authority to act on behalf the client should also be carried out by members of KYC Committee.
h) Necessary checks and balance to be put into place before opening an account so as to ensure that the identity of the client does not match with any person having known criminal background or is not banned in any other manner, whether in terms of criminal or civil proceedings by any enforcement agency worldwide.
PROCEDURE FOR IDENTIFYING THE CLIENTS
1. New clients shall have to be known to either the employees of the company or the Authorized Persons.
2. Risk management systems shall determine whether client or potential client or the beneficial owner of such client is a politically exposed person. Such procedures should include seeking relevant information from the client, referring to publicly available information or accessing the commercial electronic databases of PEPS.
3. Reasonable measures shall be taken to verify the sources of funds as well as the wealth of clients and beneficial owners identified as PEP.
4. Each and every KYC Form received from the clients shall be placed before the KYC Committee for their approval.
5. The respective dealer / the introducer shall personally interview the clients before opening their account and be personally present in the KYC Committee Meeting to give a feedback about the clients interviewed by them.
6. Each original document should be seen prior to acceptance of a copy. Failure by prospective client to provide satisfactory evidence of identity should be noted and reported to KYC Committee by the dealer / introducer.
7. While carrying out transactions for the client, the dealers / relationship managers shall ensure the identity of the clients by asking them relevant questions like their name and Unique client codes.
8. The Risk management shall ensure that the exposure given to clients are in conformity with the financial background of the client and in accordance with margin provided by them.
9. In cases of doubts regarding the veracity or the adequacy of previously obtained client identification data the principal officer may require the clients to submit additional documents.
10. Every year the KYC Form shall be reviewed and latest documents, if required, shall be obtained from the clients.
1. Records will be kept as per the record keeping requirements contained in the SEBI Act, 1992, Rules and Regulations made there-under, PML Act, 2002 as well as other relevant legislation, Rules, Regulations, Exchange Bye-laws and Circulars.
2. In order to maintain an audit trail the following information for the accounts of customers shall be kept:
(a) The beneficial owner of the account;
(b) The volume of the funds flowing through the account; and
(c) For selected transactions:
(i) The origin of the funds;
(ii) The form in which the funds were offered or withdrawn, e.g. cash, cheques, etc.;
(iii) The identity of the person undertaking the transaction;
(iv) The destination of the funds;
(v) The form of instruction and authority.
3. All customer and transaction records and information are available on a timely basis to the competent investigating authorities.
4. No Cash transaction with the clients will be entertained.
5. Following records shall be maintained and preserved for a period of five years from the date of termination of an account or business relationship.
(a) All necessary records on transactions, both domestic and international, shall be maintained at least for the minimum period prescribed under the relevant Act (PMLA, 2002 as well SEBI Act, 1992) and other legislations, Regulations or exchange bye-laws or circulars.
(b) Records evidencing the identity of its clients and beneficial owners as well as account files and business correspondence shall be maintained and preserved for a period of five years after the business relationship between a client and intermediary has ended or the account has been closed, whichever is later.
(c) Registered intermediaries shall maintain and preserve the record of information related to transactions, whether attempted or executed, which are reported to the Director, FIU-IND, as required under Rules 7 & 8 of the PML Rules, for a period of five years from the date of the transaction between the client and the intermediary.
6. In situations where the records relate to on-going investigations or transactions which have been the subject of a suspicious transaction reporting, they shall be retained until it is confirmed that the case has been closed.
MONITORING OF TRANSACTIONS
Transactions shall be monitored on a regular basis. Special attention shall be given to all complex, unusually large transactions / patterns which appear to have no economic purpose. Suspicious transactions shall also be regularly reported to the higher authorities / head of the department. Further the compliance cell of shall randomly examine a selection of transaction undertaken by clients to comment on their nature i.e. whether they are in the suspicious transactions or not. The background including all documents/office records /memorandums/clarifications sought pertaining to such transactions and purpose thereof shall also be examined carefully and findings shall be recorded in writing. Further such findings, records and related documents should be made available to auditors and also to SEBI /Stock Exchanges/FIU-IND/Other relevant Authorities, during audit, inspection or as and when required.
TRANSACTION MONITORING AND REPORTING ESPECIALLY SUSPICIOUS TRANSACTIONS REPORTING (STR)
The following shall be reported to the Principal Officer:
(a) Clients whose identity verification seems difficult or clients appears not to cooperate;
(b) Asset management services for clients where the source of the funds is not clear or not in keeping with clients apparent standing/business activity;
(c) Clients in high-risk jurisdictions or clients introduced by banks or affiliates or other clients based in high-risk jurisdictions;
(d) Substantial increases in business without apparent cause;
(e) Unusually large cash deposits, if any, made by an individual or business;
(f) Clients transferring large sums of money to or from overseas locations with instructions for payment in cash;
(g) Transfer of investment proceeds to apparently unrelated third parties;
(h) Unusual transactions by CSCs and businesses undertaken by, offshore banks /financial services, businesses reported to be in the nature of export-import of small items."
Further, the trading pattern of the clients shall be closely monitored by Risk Management Department to identify abnormal/suspicious exposure/position taken by the clients. No cash transactions shall be allowed except approval from Principal Officer. The Principal Officer and other appropriate compliance, risk management and related staff members shall have timely access to customer identification data and other CDD information, transaction records and other relevant information. The overall responsibility is on the Designated Director to report the same to the director, FIU-IND, FIU-IND can take appropriate action, including levying monetary penalty, on the Designated Director for failure of the intermediary to comply with any of its AML/CFT Obligations.
In case, the risk management has doubts about source of funds of the client or is instigated by clients to give abnormally high exposure, the same shall be immediately reported to KYC Committee to take further action.
In case of Clients of high risk countries, including countries where existence and effectiveness of money laundering controls is suspect or which do not or insufficiently apply FATF standards, should also be subject to appropriate counter measures. These measures may include a further enhanced scrutiny of transactions, enhanced relevant reporting mechanisms or systematic reporting of financial transactions, and applying enhanced due diligence while expanding business relationships with the identified country or persons in that country etc.
Irrespective of the amount of transaction and/or the threshold limit envisaged for predicate offences STR will be filed if there is any reasonable ground to believe that the transactions involve proceeds of crime.
The Principal Officer, if thinks fit, shall report any suspicion transaction to the senior management above his next reporting level or the Board of Directors.
In terms of the PMLA rules information relating to cash and suspicious transactions will be reported to the Director, Financial Intelligence Unit-India (FIU-IND) at the following address:
Director, FIU-IND,Financial Intelligence Unit-India,6th Floor, Hotel Samrat,Chanakyapuri,New Delhi-110021.http://fiuindia.gov.in
There shall not be any restrictions on operations in the accounts where an STR has been made. Company and their directors, officers and employees (permanent and temporary) shall be prohibited from disclosing ("tipping off") the fact that a STR or related information is being reported or provided to the FIU-IND. Thus, it should be ensured that there is no tipping off to the client at any level, even before, during and after the submission of an STR.
Designation of Whole Time Director as Designated Director
The Company has designated Mr. Ambrish Agarwal, Director as Designated Director to ensure overall compliance with the obligations imposed under chapter IV of the PMLA Act and the Rules.
Designation of an officer for reporting of suspicious transactions
The Company has appointed Ms. Reena Khetan, as a Principal Officer. To ensure that the Company properly discharge their legal obligations to report suspicious transactions to the authorities, the Principal Officer would act as a central reference point in facilitating onward reporting of suspicious transactions and for playing an active role in the identification and assessment of potentially suspicious transactions and implementation of SEBI Master Circular no. CIR/ISD/AML/3/2010 dated 31.12.2010.
The stock broking industry is associated with two type of risk, viz internal risk and external risk which includes very high risk in terms of volatility of stock prices, daily collection of payments from clients etc.
In view of above, to avoid suck risks and to survive in this competitive environment, Company itself maintain Risk Management system follow up regular basis at the separate client level activities. To protect the capital & interest of the company for good self, the risk of the daily business is ascertained regularly by the separate department named Risk Management Department. Pursuant to the commitment of our business activity towards enhancing investor protection and providing greater transparency we have endeavored to bring out some rules & regulation of the Exchange and in house to the client and as well as update the system. The working activities are furnished below.
Registration of client
The KYC (Know Your Client) form shall be complete in all respect. The form shall be duly signed and all the documents which are marked as mandatory in the Form shall be enclosed. Adequate Due diligence of clients shall be done, along with proper verification of the documents with the original. The name of the client given in the PAN Card should tally with the name mentioned in KYC. Also verify the PAN from Income Tax website. The form shall be scrutinized and then the client shall get registered.
Also, an internal audit shall be conducted in respect of all the forms, which has been executed for opening the Client Accounts. Any deficiency observed, shall be pointed out and it should be rectify with the immediate effect.
Initial Collection of Margin
Initial minimum margin shall be taken from all the clients. Accordingly the exposure limit shall be set. It can be in the form of cheque or by share pledge.
At the time of share pledge, the value of closing price of share of the previous day shall beconsidered & effect of margin share capital provided to client for daily trading after deduction of haircut of 30-50 %.
Margin registers shall be maintained by the RMS (Risk Management System) Department (soft & hard copy) for cash margin deposit or share margin deposit. Bank clearance cheque shall be followed through accounting system and the effect shall be given to the right client account through proper scrutiny.
Day To Day Operation
After opening of the client account in the back office, the capital limit for the client in the front office trading terminal server shall be set according to margin deposit.
Before market hour, the Exchange information for free fresh trading capital shall be checked on a daily basis
Front office Trading
The trading exposure to the clients shall be allowed by 3 to 6 times gross exposure on cash or share margin deposit. For daily turnover it shall be allowed up to 10 times (buy + sale) against the margin deposit.
The RMS server, in which the client code is mapped, shall control the daily exposure of the individual client and if any time set limit cross by the client, then system shall be block by default.
Any time, when the exposure limit cross by the client then, fresh capital for trading exposure shall be set according to dealer request and side by side the scrutiny by the RMS (Risk Management System) Department shall be done on the fresh collate deposit by the client or current margin stock valuation after deducting hair cut. This fresh capital shall be treated as additional base capital.
The margin data as span margin & var margin data shall be provided to the client according to Exchange guide lines.
Client related data such as F&O ban report to be provided to all the Branches, Sub brokers and clients and particularly F&O ban script suspended for trading, shall be locked through server.
Exchange side operation - we follow up: The utilization of exposure shall be followed as per real time basis with the Exchange and according to the requirement with the custodian the necessary action shall be taken.
The track of gross exposure utilized by the client above 70 % utilization of the exposure shall be done through RMS server at the time of trading hour towards.
After trading hour, the trading data by the back office system shall be uploaded and electronic contract notes shall be issued and it shall be send through mail server.
Client related data as open position, exercise & assign report, etc. shall be provided to all the clients through mail server.
Debtor & Creditor Management
Pay in & pay out of fund & securities operation shall be done within the time frame given by the Exchange. Securities shall be transferred to the respective clients Demat Account only on receipt of payment from them.
Also, in case of sale of shares by the clients, the payment shall be made to them only when the shares be delivered by them in the Company's demat account.
Pay in fund - debit balance - The cheque can be either collected from the client or if the client deposited it directly in the bank of the Company, the effect in the client account shall be done only after verification in the bank book or bank deposit slip.
The high value trade of both buy & sale side shall be treated cautiously and therefore early pay in & pay out funds or securities shall be done accordingly and also the benefit arises shall pass on to the client accordingly.
Any additional margin levied by the Exchange shall be informed to the client & if any credit balance is available in the client's account, it shall be utilized for utilization of margin.
If any cheque given by the client gets dishonored, it shall be taken care of before the fund pay out day. Also for the time being, client account shall be locked/freeze to avoid further trades by the said client and accordingly the client or the dealer shall be informed about the insufficiency of funds.
Pay out of securities shall be done to the system generated procedure & only after verification of the same, the shares should be released according to credit position or on receipt of cheque from them.
If any debit balance is lying in the client's ledger the shares shall be kept in the beneficiary account of the Company. These shares shall be released only on the receipt of payment by the client.
The analysis of the debit client management shall be done by the system generated ageing report on weekly basis.
The cheque shall be collected from client with in T+0 or T+1 day on day trading loss for trade or MTM loss.
Square Off Of Positions
In case a client defaults in his dues/ margin call we give him reminder calls and in the extreme cases only square off his position.
Margin Collection & Margin Reporting
Exchange data regarding margin levied by the Exchange for T+1 or T+2 days & in F&O segment, Span margin levied by the Exchange shall be informed to the clients via mail and margin reported MG 13 file shall be uploaded to the Exchange after collection of margin & updated figure according to client books shall be provided to the Exchange on a regular basis.
Separately from back office side, the information to the client for margin collection shall be sent with in T+0 or T+1 day end.
Any margin shortfall reported by the client shall be produced to the Exchange (for MG 13 reporting) and side by side trade exposure shall be reduced by squaring up trade or by locking the client account and accordingly the information shall be sent to the client. Any penalty levied by the Exchange shall pass on to client account on giving prior intimation to the client.